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Should Subprime Consumers Start Using Credit Cards Again?

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As the effects of the recent recession continue to fade, consumers are being more cautious about how they deal with debt and use their accounts in their everyday life, and that shift has prompted issuers to change their lending habits.

In the past several months, a number of studies have shown that lenders are now extending offers for new credit cards to consumers whose credit scores suffered considerably during the recent recession but have yet to fully recover, according to a report from the New York Times. In all, these institutions granted 1.1 million new credit card accounts to subprime borrowers in December of last year, up 12.3 percent on a year-over-year basis. In all, there was a total of $12.5 billion in credit card accounts extended to borrowers with credit scores below 660.

However, there has been some debate about whether this type of borrowing necessarily benefits consumers. For instance, while some consumers may have seen themselves fall behind on paying the bills every month because of financial hardships brought on through no fault of their own—emergency medical bills, unemployment and the like—many may have also done so simply because they mismanaged their credit cards and have not been able to gain access to new accounts since.

For the latter group, once again having a card might not be the best idea unless they’re willing to evaluate their spending habits and look at where they may have gone wrong in the past, and what they can do to fix those bad habits. This can include not spending more than they can afford to pay off in full over the course of a month or two, making sure to pay more than the minimum on every bill, or only using the cards to finance major or emergency payments, rather than everyday purchases.

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The type of cards being extended to subprime Americans will not carry the same benefits as those available to consumers with a healthier borrowing history, as the lender will feel the need to mitigate risk on these cards with higher interest rates and perhaps more fees as well. For this reason, subprime consumers will need to consider exactly how much they may end up paying on the card if they were to accept it, and figure out if that’s an amount they can afford.

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